Question

16. A.    A business operated at 100% of capacity during its first month, with the following results:

Sales (96 units)		$480,000
Production costs (120 units):
Direct materials	$60,000
Direct labor	15,000
Variable factory overhead	27,000
Fixed factory overhead	24,000	126,000
Operating expenses:
Variable operating expenses	$5,740
Fixed operating expenses	4,100	9,840

What is the amount of the contribution margin that would be reported on the variable costing income statement?

a. $470,160

b. $388,560

c. $479,880

d. $392,660

16. B.

1. A business operated at 100% of capacity during its first month and incurred the following costs:

   Production costs (20,600 units):
   Direct materials	$172,600
   Direct labor	228,100
   Variable factory overhead	243,600
   Fixed factory overhead	98,900	$743,200
   Operating expenses:
   Variable operating expenses	$123,800
   Fixed operating expenses	45,800	169,600

   If 1,800 units remain unsold at the end of the month and sales total $1,057,000 for the month, what would be the amount of income from operations reported on the variable costing income statement?

   a. $200,436

   b. $79,759

   c. $64,940

   d. $56,298

16. C.

1. Mandy Corporation sells a single product. Budgeted sales for the year are anticipated to be 617,000 units, estimated beginning inventory is 100,000 units, and desired ending inventory is 82,000 units. The quantities of direct materials expected to be used for each unit of finished product are given below.
   
   Material A 0.50 lb. per unit @ $0.57 per pound
   Material B 1.00 lb. per unit @ $2.08 per pound
   Material C 1.20 lb. per unit @ $1.04 per pound
   
   The dollar amount of Material C used in production during the year is

   a. $747,552

   b. $822,307

   c. $672,797

   d. $897,062

Answer 1

16. A.

Variable cost per unit = ($60,000 + $15,000 + $27,000) / 120 = $850

Contribution margin:

= $480,000 - ($850 X 96) - $5,740

= $392,660

Option d.

16. B.

Units sold = 20,600 - 1,800 = 18,800

Variable cost per unit = ($172,600 + $228,100 + $243,600) / 20,600

= $31.28

Income from operations:

= $1,057,000 - ($31.28 X 18,800) - $98,900 - $169,600

= $200,436

Option a.

16. C.

Units to be produced = 617,000 + 82,000 - 100,000

= 599,000

Material cost of Product C:

= 599,000 X 1.20 X $1.04

= $747,552

Option a.